According to an Art and Finance report published last year by Deloitte and ArtTactic, in 2017 only the US art secured lending market estimated to be worth between $17bn and $20bn, which represented 13,3% growth from 2016. Emerging art financing techniques provide short term liquidity that previously was unavailable. This makes art investment much more attractive and evident to more people.
Established in 2014, Artemus is one of the leading art secured financing providers, established in New York City, but offering services globally. ArtLaw.club had a conversation with Mr. Asher Edelman, founder and CEO of Artemus, about the financing processes and current standing of the global art market.
[the interview is a transcript of an oral conversation]
- Artemus has introduced a sale-leaseback financing solution for art collections. What does it encompass?
- We offer a financial transaction in which clients owning fine art may sell portion or the totality of their collection to Artemus. We then subsequently lease the pieces back to them at a yearly rate. That means that the clients get the money and can keep their art on the walls.
The lease agreement provides the client with the option to repurchase the collection at any time during the lease at a per annum premium modestly above the initial sale price.
- When this opportunity might be the most requested by the art owner?
- When the art owner needs to create liquidity to settle his current financial obligations or inject into a business opportunity. Or to acquire additional artwork.
- If the client is unable to purchase the collection back during the time of lease, what happens to the art after that?
- The owner can purchase it any time during the lease term. Actually, he will always purchase it because we have bought at wholesale and he purchases back at wholesale (plus small fee). In case he cannot purchase it then he instructs us to sell it on his behalf, because when we have sold it, we take all the related fees (for the lease which cannot be paid, for instance), and then return the rest of the money to him. I believe that the client would only leave us with the art if it all had fallen apart due to the crisis so heavy that his purchasing it back at a wholesale was no longer attractive.
- Besides lease-back option, you offer to lease art as such. Artemus states it is more beneficial than just buying an art piece. Why?
- Leasing allows to get top quality art for a fraction of its price and benefit from the market fluctuations. Moreover, according to the tax rules, lease may qualify as a deductible expense, that seems to be quite a big advantage.
- How does your art loan program differ from leasing?
- Art loan program is typically used for shorter term financing (1 year to 2 years), while leasing usually takes 5 to 10 years. The underwriting process though is similar.
- What is the minimum price tag or level of market liquidity that would attract your interest?
- Normally we try to lend or to do a leasing transaction on art which is done by artists whose art trades at auction (three major houses) at least 8-10 times a year and so it is limited to about 400 artists (maybe 450) worldwide and historically. The minimum is 1M dollars, which we lend or lease. We sometimes will go lower than that as a service to someone who we do business with in general. We lend at about 40-50% of what we think the value of the art to be.
- What are your main clients in terms of their type of business?
- The leasing clients tend to be hotels, real estate lobbies, hospitality groups. Generally, these are more long-term oriented clients who don’t only need the liquidity but want art for a long term, usually for commercial or other types of offices, buildings, lobbies, hotels, etc.
Lending clients can really be the ones looking for liquidity including collectors, galleries, speculators, etc. There is a broad rage for the lending clients.
- Have you ever had clients from the Baltic/Scandinavian region?
- Yes, but in New York. Not in Scandinavia or the Baltics. Otherwise, we are active in Western Europe and the UK.
- Art-secured lending, art leasing and other financial solutions for the art market participants are considered to be highly developed in the US and underdeveloped outside the US. Could you comment on this?
- I don’t think it’s highly developed in the US, since there are very few institutions that do art financing here. The banks do it only for their private banking clients. And it’s really is not art financing, it’s basically financing of the total net worth.
- In one of your articles you mention the contrast between how art was dealt in the 20th century and what are dealers have to be today. What is different now?
- Art was previously dealt in a slightly more elegant and less cross-financial basis. People actually looked at art and they did not only concern themselves with how much it would be worth or whether their friends would be impressed by what is on the walls. Art has become driven by people’s ego and by money, I suppose, and less by the quality of art these days.
- In the interview to ArtTactic a year ago you were quite skeptical about the general standing of the art market. Has anything changed in the past year?
- I don’t think that anything has changed at all. I think that the art market now is even deeper in decay, since it is beginning to include the dark market, the high price dark market, that’s mainly being supported by the guarantees at auctions.